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UNCLAS SECTION 01 OF 06 PARIS 007835
SIPDIS
SENSITIVE
SIPDIS
STATE FOR EB/IFD/OMA
TREASURY FOR DO/IDD AND OUSED/IMF
SECDEF FOR USDP/DSAA
PASS EXIM FOR CLAIMS -- EDELARIVA
PASS USDA FOR CCC -- ALEUNG/DERICKSON/KCHADWICK
PASS USAID FOR CLAIMS
PASS DOD FOR DSCS -- PBERG
E.O. 12958: N/A
TAGS: EFINECONEAIDXMXAXHXBXFFR
SUBJECT: PARIS CLUB - DECEMBER 2006 TOUR D'HORIZON
SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET DISTRIBUTION
-------
SUMMARY
-------
¶1. (SBU) At the December 12-13 meeting of the Paris Club, creditors
provided Haiti a debt restructuring based on its achievement of
decision point under the Heavily Indebted Poor Countries (HIPC)
initiative. This agreement consolidates around USD 69 million in
debt, and will lead to the immediate cancellation of USD 7.2
million. The US will forgive 100% of debt service falling due
between HIPC decision point and completion point, as long as Haiti
performs satisfactorily on its IMF Poverty Reduction and Growth
Facility (PRGF). In a surprising development, Angola has begun
making significant arrears payments to its Paris Club creditors.
Moreover, the country appears to be moving closer to reaching an
agreement with the IMF on a Stand-By Arrangement (SBA). If an SBA
is approved, Angola may ask the Paris Club to forgive USD 1.8
billion in late interest. (Angola has no arrears and owes no late
interest to the US.) Creditors agreed on a written response to a
letter from Argentina expressing its desire to normalize relations.
The response was rendered devoid of any substance by Italy, which
continues to cite domestic sensitivities related to holdout
bondholders. Based on preliminary indications from the authorities,
and considering the positions of Paris Club creditors, it appears
unlikely that Argentina's situation will be resolved in the near
term. Other countries on the agenda included the Central African
Republic, Iraq, Laos, Serbia Montenegro, Seychelles, Sierra Leone,
Sudan, and Suriname. END SUMMARY.
------
ANGOLA
------
¶2. (U) In a surprising development, Angola has gone well beyond its
commitment to make a USD 100 million goodwill payment toward its
Paris Club arrears and has begun making significant additional
payments. Japan and Norway reported that all arrears have been
cleared (excluding late interest), while several other countries
said a large portion of their arrears have been cleared. Denmark,
France, Spain, and Switzerland, on the other hand, have not received
any payments beyond their share of the goodwill payment. Angola has
also fulfilled its commitment to resume debt service on maturities
falling due following a delay due to technical problems. The IMF
said that, following a recent staff mission, an SBA is being
considered at the presidential level and could be brought to the IMF
executive board as early as February. Staff reports that the
government has included in its 2007 budget USD 2.3 billion in
payments to the Paris Club, an amount equal to total Paris Club
PARIS 00007835 002 OF 006
arrears excluding late interest.
¶3. Although some creditors complained about unequal treatment,
Paris Club Chairman Musca stressed the positive: Angola has gone
well beyond its previous commitment to make a $100 million payment
and resume debt service; it appears to be on track to get an IMF
program; and its unequal treatment of creditors is most likely due
to technical shortcomings rather than a deliberate attempt to
discriminate among creditors. The secretariat said it would follow
up with the authorities on the latter point. In the meantime, the
secretariat urged creditors not to apply payments received toward
SIPDIS
late interest, as requested by Angola and as previously agreed among
creditors in the context of the 100 million dollar goodwill payment.
Musca speculated that if an IMF program is approved and Angola
comes to the Paris Club next year, the authorities will request
forgiveness of USD 1.8 billion in late interest. (Angola has no
arrears and owes no late interest to the US.)
---------
ARGENTINA
---------
¶4. (SBU) Chairman Musca summarized his meeting with then Finance
Secretary Mac Laughlin at last month's G-20 meeting in Melbourne.
SIPDIS
Musca told Mac Laughlin that any rescheduling in the Paris Club
would require an IMF program, and that Argentina should consider
clearing its arrears (USD 3.5 billion) in view of its USD 30 billion
in reserves. Mac Laughlin responded that an IMF program is not
possible, and that Argentina faced large external debt service
payments in the next few years as a result of the commercial debt
exchange. Musca inferred from the discussion that Argentina has in
mind a rescheduling of its Paris Club obligations (which would be
consistent with reports in the press), and that the government will
not address the holdouts until after the October 2007 elections
(though Mac Laughlin did not state this explicitly).
¶5. (SBU) Reaction to Musca's report was mixed. Germany, apparently
eager to extend new export credit financing to Argentina, said the
Paris Club needed to remain open to creative solutions. The UK
commented that a Paris Club solution would be difficult, and that it
would be important for creditors to remain united in withholding new
financing. Japan said its stance had not changed: Argentina should
clear arrears immediately, and the Paris Club should not contemplate
any rescheduling without an IMF program. Spain said it continues to
seek a bilateral settlement with respect to its USD 835 million
crisis loan. Italy stressed that a resolution of the holdout
problem must remain part of the Paris Club discussion, even if the
Paris Club is not directly concerned.
At Germany's request, the secretariat drafted a formal response to
PARIS 00007835 003 OF 006
Mac Laughlin's letter of November 9. Italy gutted the letter of any
substance and insisted on an oblique reference to the holdouts.
------------------------
CENTRAL AFRICAN REPUBLIC
------------------------
¶6. (U) Next week, the IMF executive board will consider a new
three-year PRGF for CAR, for which the Paris Club provided financing
assurances last month. A preliminary HIPC document will be
circulated in January. The secretariat will invite CAR to come to
the Paris Club in March for negotiations. (The Paris Club does not
meet in February.) The IMF said CAR could reach HIPC decision point
in the third quarter of 2007, at the time of the first review of the
PRGF, assuming satisfactory performance and agreement on completion
point conditions.
-----
HAITI
-----
¶7. (U) Creditors provided a HIPC decision point treatment.
Commercial debt service falling due during the period of the PRGF
will be canceled at a level of 90% (taking into consideration
previous cancellation granted by the Paris Club), with the balance
rescheduled over 23 years, with a 6-year grace period. Official
development assistance (ODA) debt service will be rescheduled over
40 years, with a 16-year grace period. Arrears on commercial debt
that had not been rescheduled previously will be canceled at a level
of 67%; all other arrears will be rescheduled. Creditors also
agreed to capitalize interest payments falling due during the PRGF,
and urged Haiti to seek comparable treatment from Taiwan, its
principal non-Paris Club creditor. As a result of the agreement,
Haiti's debt service during the period of the PRGF will fall from
approximately USD 8 million per year to essentially zero. Per its
HIPC policy, the US will go beyond the requirements of the Paris
Club agreement and forgive 100% of the debt service falling due
during this period, provided Haiti performs satisfactorily on its
PRGF.
----
IRAQ
----
¶8. (U) The US asked Germany to provide more information about its
attempt to collect 100% of post-1990 pre-cutoff date claims on Iraq.
Germany said it did not have any information on hand and would look
into the matter. Russia, meanwhile, said it had nothing new to
report on the status of its bilateral agreement. Negotiations have
been completed, but final signature of the agreement continues to
await "legal authority." (Russia remains the only Paris Club
PARIS 00007835 004 OF 006
creditor that has yet to conclude its bilateral agreement
implementing the December 2004 agreed minute.)
----
LAOS
----
¶9. (U) In response to an inquiry from Norway, the IMF clarified
that, for the time being, HIPC was an open-ended option for Laos.
The IMF added that, at the request of executive directors, members
of its staff are working on an exit strategy for countries such as
Laos that are HIPC eligible but not interested in availing
themselves of HIPC debt relief.
---------------------
SERBIA AND MONTENEGRO
---------------------
¶10. (SBU) Some creditors (Netherlands, Norway, Japan) continue to
raise concerns about the implications of the decision by Serbia and
Montenegro to allocate debt between themselves according to the
final beneficiary principle. In a recent letter to the Paris Club,
the Serbian authorities stated that the two sides had reached an
amicable agreement on the partition of the debt and were eager to
conclude new bilateral agreements with Paris Club creditors. The
Netherlands, Norway, and Japan insisted that the secretariat contact
the authorities by telephone to reiterate the Paris Club's position,
as articulated in a November 13 letter, that bilateral agreements
between Paris Club creditors and the two countries must follow the
debtor/guarantor principle rather than the final beneficiary
principle, unless otherwise specified by the creditor. The US and
France are prepared to negotiate bilateral agreements with Serbia
and Montenegro according to the final beneficiary principle.
----------
SEYCHELLES
----------
¶11. (U) The IMF said the authorities are keen to normalize
relations with Paris Club creditors and have expressed interest in a
possible IMF program. The authorities will come to Washington in
January for further discussions with IMF staff. The secretariat
said the Seychelles' anticipated 4 million euro arrears payment
should take place in coming days. (The US is not a creditor.)
------------
SIERRA LEONE
------------
¶12. (U) Sierra Leone is expected to reach completion point this
month. Negotiations in the Paris Club are tentatively scheduled for
January.
PARIS 00007835 005 OF 006
-----
SUDAN
-----
¶13. (U) The secretariat summarized the results of a recent data
call. As of October 2006, Sudan owed the Paris Club USD 10.2
billion, of which USD 9.9 billion is in arrears (including USD 5.9
billion in late interest). France and the US are the two largest
creditors with USD 2.0 billion each in claims, followed by the UK
(USD 1.1 billion) and Austria (USD 1.0 billion). The IMF said Sudan
had contracted USD 670 million in non-concessional loans in the
first ten months of 2006 (58% from India, 24% from China), compared
to a limit of USD 700 million under its IMF Staff Monitored Program
(SMP).
--------
SURINAME
--------
¶14. (SBU) The US reported that Suriname had not made any payments
in almost four years and asked if other creditors were in a similar
situation. France and the Netherlands said Suriname was current on
its debt. Brazil and Denmark, on the other hand, reported
longstanding arrears. Japan said arrears on short-term debt were
cleared earlier this year. Italy and Germany revealed that they had
recently concluded bilateral debt agreements with Suriname (without
informing the club). When asked by the US whether this unequal
treatment of creditors constituted a breach of solidarity, the
secretariat said the answer depended on the outlook for an eventual
SIPDIS
treatment of Suriname's debt in the Paris Club. If there is no
prospect for a Paris Club treatment, then creditors have more
flexibility to pursue their claims bilaterally. If, on the other
hand, a Paris Club treatment remains a possibility, then creditors
should respect solidarity and seek a multilateral solution. (Note:
In Suriname's case, an eventual Paris Club treatment cannot be ruled
out, although the country does not have an IMF program at the
present time.) The secretariat will draft a letter to the
authorities urging them to clear arrears and to treat Paris Club
creditors equally.
-----------
METHODOLOGY
-----------
¶15. The secretariat noted that out of 18 countries having reached
completion point, 12 have failed to fulfill the requirement, as
specified in the agreed minutes, to report to the Paris Club on
progress obtaining comparable treatment from non-Paris Club
creditors. Creditors agreed on a letter, to be sent to all 12
countries, reminding them of this requirement and offering the
PARIS 00007835 006 OF 006
assistance of the secretariat. In a continuing effort to promote
awareness of the Debt Sustainability Framework (DSF), the IMF and
World Bank summarized a recent joint staff paper on ways to improve
the rigor, quality, and effectiveness of debt sustainability
analyses.
The secretariat called on volunteers to participate in a working
group that will meet on the margins of future Paris Club sessions to
draft a glossary of Paris Club terms, which may be posted to the
Paris Club website.
HOFMANN